February 6, 2011 Newsletter

Refinance versus modification. Both are means by which you can lower your monthly mortgage payment, and both still have value for today’s homeowners. While interest rates have left the incredibly low 4.25% rates we saw last fall, refinancing is still a valid option if you have an interest rate in the high 5.0 or low 6.0 percent range. But modifications are not just for those having trouble making their mortgage payments. Some lenders are becoming savvy enough that they are soliciting their on time borrowers by offering a lower rate, even though the borrower did not request it.

Case in point, one client came to us with an offer from her existing lender with a modification of her existing 5.5% loan to a new 4.5% loan. Why? Because lenders have figured out that good borrowers are harder to come by. Keeping an existing on time borrower with equity is cheaper and better than having the expense of replacing that borrower when they refinance with another lender.

There are certain things to watch for. Make sure the offer is coming from your current lender; otherwise it’s just a clever way of marketing a refinance to you. Its common practice for soliciting lenders to send out mailings offering a lower rate than your current rate, and the name on the exterior of the envelope is the same name as your current lender (which they got from the public land records). If you receive such an inquiry and can’t decide if it’s legitimate, contact us and we will verify its validity. Second even the “no closing costs” deal will often have some costs associated, such as replenishing your escrow account. In a true modification there should be no appraisal cost, since the lender already has your loan, and is “stuck” with your appraised value, whatever it may be. If however it is your existing lender, and the only true costs are escrows and odd days interest (which you would be paying on the other loan anyway), then it probably behooves you to follow it through.

Modifications can also be obtained by borrowers who can’t refinance because the appraised value has gone down. In such an instance you may qualify for one of the government programs available. Check out www.makinghomeaffordable.gov for the government’s official site. If you want further advice, call us. The worst mistake many people who are in financial trouble make, is putting their head in the sand and hoping it will go away. It won’t.